Abstract
Abstract The objective of this study is to propose the development of a market for income inequality by specifying a firm’s contribution to income inequality and outlining a simple model to find the equilibrium price for a given target of income inequality reduction. The paper reviews the concepts of firm heterogeneity and externalities in relation to income inequality. It then proposes a model by establishing income inequality reduction targets for a population of firms, presenting a marginal income inequality reduction cost curve, and matching demand and supply to derive the equilibrium price, and ends by simulating a market for income inequality reduction using data from a sample of fifteen firms. This paper shifts the focus of income inequality research and policy to the firm and proposes a market-based mechanism for firms to reduce income inequality.
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